The burst of mergers
It appears we’ve had a number of mergers announced, especially here in North Carolina. Kroger announced they were acquiring Harris Teeter. US Air and American Airlines are trying to combine, and now we have Walgreens saying they will buy Kerr Drug Stores. What’s going on? N.C. State University economist Mike Walden responds.
“Well, number one, I think it’s a sign of better economic times. Generally, we see mergers go by the wayside during recessions because of all the uncertainty. Then when the economy comes back and there’s more certainty of where the economy’s going, you see those mergers pick up.
“So I think that’s point number one. Second point is we are moving in this country more and more to a national market — national advertising. For example, we’re getting away from regional companies. So I think you’re going to see those regional companies — like Harris Teeter, big in the southeast; Kerr Drug Stores, obviously big in North Carolina — unfortunately be picked off and merged with a national firm.
“Now some see benefits to going national. The advertising I mentioned; you can get more national advertising. Secondly, you can sometimes work better deals with your suppliers and also get better deals on credit rates.
“What I think, however, these mergers and the big firms have to watch out for is not offending the local customers of the acquired firm. For example, Harris Teeter has had a lot of loyal customers, many of whom are not happy to hear about the merger. So I think Kroger — in this case — has to be very careful about not offending those local customers. And sometimes that means keeping, in this case, the Harris Teeter name. But I would look for more mergers coming down the pike.”Category: Economic Perspective